Meeting the China Challenge to Manufacturing in Mexico Factors Influencing Competition between Mexico and China in the U.S. Market for Manufactured Goods.

Similar presentations

Presentation on theme: "Meeting the China Challenge to Manufacturing in Mexico Factors Influencing Competition between Mexico and China in the U.S. Market for Manufactured Goods."— Presentation transcript:

1
Meeting the China Challenge to Manufacturing in Mexico Factors Influencing Competition between Mexico and China in the U.S. Market for Manufactured Goods

3
How serious is the China challenge to manufacturing in North America? Some claim that China has been responsible for the downturn in the U.S. manufacturing employment because of: – Undervaluation of the yuan – Low labor costs – Unfair trade practices Dumping and export subsidies Patent infringement Blocking foreign access to the Chinese market

4
U.S. losing market share to Asia Post WWII Japan became a low-cost supplier to the U.S. market in the 1950s and 60s Replaced by the Four Tigers in the 1970s, 80s – Korea, Taiwan, Hong Kong, Singapore 1990s: MFN for China As wages increased in the Tigers, companies in Taiwan and Hong Kong shifted labor-intensive operations to Mainland China

5
Faced with competition from Asia, many U.S. companies: – Sourced labor-intensive inputs from Asia – Imported the lower-end of their product lines – Sent manufacturing specifications to Asia – Invested in joint ventures in China to supply markets in Asia – Instructed U.S. parts suppliers to shift production to China to supply assembly plants there

6
Other U.S. companies responded by Use of assembly plants in Mexico, which: --Lowers North American manufacturing costs. --Maintains NA market shares vs. low-cost imports. --Provides a regional market for components and other industrial inputs originating in the United States. – 40% of all inputs used in export-oriented manufacturing in Mexico originates in the U.S. – Only 4% of the value of U.S. imports from China consists of U.S.-origin components & materials.

8
China Challenge to Mexico As companies in China improved quality, diversified export portfolios, and moved up the technology chain... Some companies with operations in Mexico shifted production to China to supply markets there and export back to North America. Other companies closed or downsized their North American operations because of competition with China.

9
How serious is the China challenge to manufacturing in North America? China has been blamed for the loss of U.S. manufacturing jobs in the recessions of 2002 and —U.S. producers’ shipments fell by 7.5%; 2.5 million manufacturing jobs were lost Mexico’s maquiladora sector lost 288,000 jobs

10
Was China to blame? Press reports about factories closing in both the United States and Mexico as production shifted to China often closed with predictions of the demise of manufacturing in North America. Several bills were introduced in the U.S. Congress designed to mitigate the “unfair” competition with China.

11
U.S. imports from NAFTA partners and China, (billion dollars)

12
Trends during China’s share of U.S. imports increased from 8.3% to 14.6% – From $100 billion to $243 billion Mexico’s share of U.S. imports slipped from 11.2% to 10.2% – From $135 billion to $169 billion

13
U.S. imports from NAFTA partners and China, (billion dollars)

14
U.S. imports from NAFTA partners and China, (billion dollars)

15
Trends during China’s share of U.S. imports increased from 14.6% to 19.6% – From $243 billion to $438 billion Mexico’s share of U.S. imports advanced from 10.2% to 12.4% – From $169 billion to $278 billion

16
Ratio of imports from China and Mexico to total U.S. imports,

17
Ratio of imports from China and Mexico to total U.S. imports,

18
Ratio of imports from China and Mexico to total U.S. imports,

19
China and U.S. Job Losses Competition with imports from China was a minor cause of North American job losses during Using 2004 as a base year, manufacturers’ shipments climbed 33 percent by 2013 while manufacturing employment fell by 16 percent. By far, the most important cause of losses in U.S. manufacturing employment was improvements in manufacturing and labor productivity.

20
Figure 1.

21
U.S. Manufacturers’ Shipments and Employment, (2004=100)

22
Keys to the Competitiveness of Mexican Manufacturing - 1 Proximity of Mexican assembly plants to partner companies on the U.S. side of the border that – Supply the assembly plants with industrial inputs – Further process Mexican-made subassemblies – Market final goods

26
How does Mexico compete with China? Lower transportation costs Less time from manufacturers to market Easier communication and supervision of production Greater flexibility for changes in production More transparent government regulations Better protection of intellectual property

27
Mexico is most competitive with China in products with the following characteristics--1: High ratio of weight to value – Motor vehicles – Large screen televisions – Major household appliances Quality (rather than price) sensitive – Medical goods – Process control instruments – Precision metal working

28
Mexico is most competitive with China in products with the following characteristics—2: Products that are inputs for industries that require: – Just-in-time delivery – Customized production – Frequent design changes – Protection of intellectual property

30
Why do consumers think everything is made in China? For analytical purposes, the USITC monitors trade in 250 categories. In 25 categories, China accounted for 65% of total U.S. imports in 2011 and Mexico, 9%. In the remaining 225 categories, which accounted for 88% of U.S. imports in 2011, imports from Mexico exceeded imports from China, 12.4% of total compared with 12.0%.

35
Televisions and monitors: U.S. imports from China and Mexico, Billion dollars

36
Refrigerators: U.S. imports from China and Mexico,

37
Medical goods: U.S. imports from China and Mexico,

38
Several factors are increasing the costs of importing from China – Rising value of the yuan – Rising labor costs in the industrialized coastal regions of China – Rising costs of imported inputs used in assembly – Growth of demand by China’s middle class – Increasing costs to ship finished good to North America Future competition between China & Mexico in the U.S. market

39
Future Mexico/China competition The production of many labor-intensive goods for which China has been the dominant supplier is moving to other suppliers in Asia, such as Vietnam, Cambodia, and Indonesia. Companies may shift some of their sourcing for higher value-added products from China to Mexico